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Leaning against the Wind: Do Central Banks Necessarily Lose?

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  • Carlson, John A
  • Kim, Insook

Abstract

A leaning-against-the-wind intervention that has only a temporary effect on the exchange rate and that is not too aggressive can be shown analytically to yield positive expected profits to a central bank even when the exchange-rate process is nonstationary. These profits arise if there are some transitory shocks to the exchange rate. Furthermore, very aggressive intervention will yield positive expected profits eventually when there is a tendency for exchange rates to return to a long-run equilibrium level. Copyright 1994 by Blackwell Publishing Ltd.

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  • Carlson, John A & Kim, Insook, 1994. "Leaning against the Wind: Do Central Banks Necessarily Lose?," Review of International Economics, Wiley Blackwell, vol. 2(2), pages 143-152, June.
    • Handle: RePEc:bla:reviec:v:2:y:1994:i:2:p:143-52
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